dealt in commercial paper by way of trade; but the tendency of the day is towards a more liberal allowance of the practice, so long as the lender bona fide advances the whole principal, and deducts only legal rates of interest. Whether, on a discount of a bill or note, it is usurious to reckon the month at thirty days and the year at three hundred and sixty days and compute accordingly, seems in dispute; but mercantile usage is probably in its favor.1 But where, under the pretext of discounting a note, more than the legal rate is taken out by the lender, the transaction is usurious.2 A court is not to be misled by appearances in such a case; and whether maker, payee, indorser, indorsee, or any holder is concerned, he will be affected by participation in the usury. Nor does it matter in civil consequences, that the lender acted in good faith and without actual intention of evading the law which is violated.8 Yet when it comes to the sale of commercial paper for less than its face, and at a discount, new considerations are found to arise, which just at this time receive much attention in our courts; and certainly the present tendency is towards sustaining the bona fide sale and purchase of negotiable securities for any rate of discount, through brokers or otherwise, and this although the practical effect might be to defeat the policy of the usury laws. In this respect, as in others, the business community are apt to strain a doubtful point, 1 Cf. Parker v. Cousins, supra, and Utica Ins. Co. v. Tillman, 1 Wend, 555. 2 Gebhart v. Sorrels, 9 Ohio St. 461; Nichols v. Levins, 15 Iowa, 362; 44 Minn. 419; Connor v. Donnell, 55 Tex. 167. Equitable Trust Co. v. Fowler, 141 U. S. 384; Drury v. Wolfe, 34 Ill. App. 23. An agreement to pay periodically in advance the highest legal rate of interest for the use of money is not usurious. Rose v. Munford, 36 Neb. 148. And this, although the money loaned was not paid over to the borrower until after interest began to run, provided the fault for such delay was that of the borrower. Ib. 4 See Noble v. Walker, 32 Ala. 456; May v. Campbell, 7 Humph. 450; Van Duzer v. Howe, 21 N. Y. 531; Gaul v. Willis, 26 Penn. St. 259; Metcalf v. Pilcher, 6 B. Monr. 529; Dickerman v. Day, 31 Iowa, 444; Maas v. Chatfield, 90 N. Y. 1; Colehour v. Savings Institution, 90 Ill. 152; Belden v. Lamb, 17 Conn. 441; 72 Hun, 373. And see § 275, post. As between business and accommodation paper, see § 275. and lend the sanction of business usage in advance of judicial interpretation. In principle, such sales correspond closely to the familiar transaction of purchasing coupon bonds or stock at market rates, whether above or below par; and the element of probable solvency enters into all such values. § 270. Whether Charging for Exchange is Usurious. It is not usury to charge the customary market rates of exchange, where the loan is made in one place and is payable in another. But where, as is too frequently the case, this charge of exchange is a mere device and cover for usury, and the note is executed and payable at home, the transaction becomes usurious. And while rates of "exchange" are usually as between one State or country and another, it is held not to be usurious for the lender of money to take advantage of the difference of exchange between the place of the loan and the place of the payment, where both places are within the State.2 In § 271. Whether taking Gift, Bonus, Fee, etc., is Usurious. Usury is often taken in the shape of a gift or bonus; and where one lends money and simultaneously takes back part of the loan by way of a special premium, but without special consideration, this is a usurious device of the thinnest kind. But as concerns compensation for special services, the repayment of expenses, attorney's fees, commissions, and the like, the rule may be otherwise, under some circumstances. order that the extra allowance may not taint the whole transaction, it must be reasonable and proper, and stand for some real service distinct from the loan itself. A disguised gratuity inuring to the lender under the name of a commission will infect the contract of loan with usury; but for certain special services, which are well understood in the mercantile world, the lender who has rendered them in good faith is permitted to charge something in addition to the lawful rate of interest, 1 Price v. Lyons Bank, 33 N. Y. 55; Blyd. 52; Buckingham v. McLean, 13 How. 151; Durkee v. City Bank, 13 Wis. 216. 2 Eagle Bank v. Rigney, 33 N. Y. 613. And see Kilgore v. Dempsey, 25 Ohio St. 413. VOL. I. 23 8 See N. Y. Dry Dock Co. v. American, &c. Co., 3 Sandf. Ch. 215; 48 Iowa, 385; Lockwood v. Mitchell, 7 Ohio St. 387; Jarvis' Appeal, 27 Conn. 432; Grubb v. Brooke, 47 Penn. St. 485; Stark v. Sperry, 6 Lea, 411; Walter v. Foutz, 52 Md. 147. 353 -as for accepting the drafts drawn by a customer, and purchasing supplies for him, provided always that the charge be well founded and reasonable in amount.1 And while the lender, who takes something above legal interest from the borrower under all such circumstances, is to be narrowly watched, there is no doubt that the reasonable charges of third persons in connection with the transaction are properly allowable; such as attorney's fees, or the commissions of a broker.2 And whether all charges of this character are excessive or not will depend upon the ordinary rules.3 What, it should be asked (though this may not be the full criterion), was the intention, and what were the motives of the parties at the time of the transaction. A bonus paid by the borrower to his own agent for procuring a loan is no part of the sum loaned and raises no issue of usury.5 1 See Blyd. 57; Byrne v. Grayson, 15 La. Ann. 457; Beadle v. Munson, 30 Conn. 175; Corlies v. Estes, 31 Vt. 653; Jones v. McLean, 18 Ark. 456. 2 Tallman v. Truesdell, 3 Wis. 443; Billingsley v. Dean, 11 Ind. 331; Smith v. Wolf, 55 Iowa, 555; Dayton v. Moore, 30 N. J. Eq. 543. 8 For an agent's act within the usual scope his principal is usually bound; but it appears that, if the agent of the lender takes a usurious bonus for himself without the lender's authority or knowledge, the contract is not thereby rendered usurious. See Bell v. Day, 33 N. Y. 165; 87 Ill. 513; Austin v. Harrington, 28 Vt. 130; Rogers v. Buckingham, 33 Conn. 81. Such is the pronounced rule of some States. Van Wyck v. Watters, 81 N. Y. 352; Brigham v. Myers, 51 Iowa, 397. Loan not made usurious by the fact that the borrower's agent receives a commission which he divides with the lend er's agent. Dickey v. Brown, 56 services as to the title and drawing the papers, no part thereof being received by the mortgagee. White v. Dwyer, 31 N. J. Eq. 40; Kihlholz v. Wolf, 103 Ill. 362; 111 Ill. 506; 145 Ill. 421; 43 Minn. 517. Otherwise, semble, if the benefit enures directly to the lender. 103 Ill. 362. Money to a reasonable amount deducted from a loan and paid to the agent who secured the loan for the borrower does not constitute usury. Goodwin v. Bishop, 145 Ill. 421. But as to one procuring the loan who is the lender's agent, see Ginn v. Mortgage Security Co., 92 Ala. 135. 4 Fraud in obtaining extra sum from borrower as expense incurred in procuring loan, distinguished from usury. Morton v. Thurber, 85 N. Y. 550. Stipulation (e.g. in a mortgage) for the payment of attorney's fees in case of default and suit is not usurious. Weatherly v. Smith, 30 Iowa, 131; Miner v. Paris Bank, 53 Tex. 559; 82 Ala. 315. Nor is the agreement by the borrower to pay the tax instead of the lender. Dubose v. Parker, 13 Ala. 779. 5 Dryfus v. Byrnes, 53 Fed. 410. Sometimes a bonus or gratuity is really usurious, though taken rather by way of special advantage than as a direct payment in cash. Thus, where a loan of money is made to a corporation on condition that the lender shall be employed in some official position, which is in fact a sinecure, and shall receive a salary without rendering equivalent services, this is a mere usurious device, and the transaction is illegal; though sometimes a special contract of this sort might be separated from the loan, and pronounced invalid simply by itself.1 So, too, an agreement to pay a lender a share of the business profits of the borrower in addition to principal and interest is usurious.2 But not a bona fide contract to perform certain work for a corporation at specified prices and to receive payment in its bonds. And though, under some circumstances, an agreement on a loan of money that the lender shall receive as recompense the rents and profits of land, might be deemed usurious, this will not be taken as a cover for usury unless the facts afford a very strong presumption of usurious intent, as where the rent is excessive.1 § 272. Rule of Usury applied to Banks. The business of discounting and charging rates of exchange on loans belongs especially to banks; and not only are the rights and liabilities of such corporations defined to a considerable extent by charter, but general legislation tends to place them upon a footing quite different from that of individuals, with privileges and restrictions entirely their own. Yet, in the absence of special statute provisions, it may fairly be supposed that general usury laws have the same application to banks as to natural persons.5 To take interest in advance on loans has long been within the established rules of banking; but a bank cannot take more than legal rates upon a note after it has become payable, any more than an individual. Cases 1 Griffin v. New Jersey, &c. Co., 3 Stockt. 49; Waite v. Windham, &c. Co., 37 Vt. 608. 2 See Sweet v. Spence, 35 Barb. 44. * White Water, &c., Co. v. Vallette, 21 How. 414. 298; Cross v. Hepner, 7 Ind. 359. As to usury under color of a lease, see Phelps v. Bellows, 53 Vt. 539. See Brower v. Haight, 18 Wis. 102; Niagara County Bank v. Baker, 15 Ohio St. 68; Farmers' Bank v. Sessions v. Richmond, 1 R. I. Burchard, 33 Vt. 346. are not uncommon where a bank has violated the general usury laws and been held liable accordingly, to say nothing of charter restrictions upon its powers; and the question of usurious intent is here quite as material as in ordinary instances.1 Banks often give advantages to depositors which those desiring an occasional discount are not slow to discover. And if a person obtaining discounts voluntarily allows a sum to remain on deposit with the expectation that he may thus obtain discounts more readily, but without any agreement or understanding that he may not draw his money at any time, there can be no usury in the practice.2 Even where there is a distinct understanding at the time of the discount that the bank shall receive the borrower's deposits, and an extra profit results in consequence, the courts appear reluctant to infer usury from that circumstance; though in a very hard and clearly established bargain they probably would. Banks like individuals are sometimes entitled to compensation for collection of a draft; and it is held that where such charge is made in good faith and paid in advance, the transaction is not rendered usurious by the subsequent retention of the draft by the bank at the request of the drawer, and its payment at maturity without any deduction of the charge. A bank may, by agreement, lawfully charge a customer with interest on his overdrafts in making up monthly balances.5 § 273. Rule of Usury as to the Loan of Productive Chattels. -To take collateral security on a loan is of course perfectly 1 Thus, an arrangement by which one seeking a discount at a bank is required to obtain a discount of paper amounting to fifteen hundred dollars to secure the application to his use of one thousand dollars of the proceeds, without the right to use the remainder thereof except in payment of the paper discounted, when it shall become due, has been held usurious. East River Bank v. Hoyt, 32 N. Y. 119; Rock, &c. Bank v. Wooliscroft, 16 Wis. 22. See Belmont Branch Bank v. Hoge, 35 N. Y. 65. 201. 2 Appleton Bank v. Fiske, 8 Allen, 3 See Beals v. Benjamin, 33 N. Y. 61. As to usury paid in dealings with a national bank, see Driesbach v. Wilkesbarre Bank, 104 U. S. Supr. 52; Eates v. Montgomery Bank, 100 U. S. Supr. 239; Auburn Bank v. Lewis, 81 N. Y. 15. 4 Central Bank v. St. John, 17 Wis. 157. 5 Timberlake v. First Nat. Bank, 43 Fed. 231. Charging a "banker's commission" specially under a loan, is a device for usury. 79 Md. 173. |